Cloning Famous Investors

Investing Strategies
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Mohnish Pabrai has famously said “On my gravestone, I want them to write, ‘He loved to play games, especially games he knew he could win.’ Cloning is a game.”
He has famously copied Warren Buffet’s partnership structure and made stupendous wealth for his investors and himself. Here is an interesting article he wrote for Forbes back in 2017.

Applying Shameless Cloning In India

SEBI has made it compulsive for Public Listed Companies to publish all investors who hold a stake of greater than 1%, every quarter.

The portfolios of multiple top investors are available here on Trendlyne.

Selecting Investors To Clone

I request everyone to recommend investors who are noteworthy with a good reputation to clone below!

Candidate 1 - Madhusudan Kela
Madhusudan Kela publicly holds 12 stocks with a net worth of over Rs. 2,429.5 Cr. He has an impeccable track record and his portfolio has grown at an exponential rate recently.
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Candidate 2 - Sunil Singhania
Sunil Singhania publicly holds 24 stocks with a net worth of over Rs. 2,752.4 Cr. His portfolio has grown by large amount of the last 5 years, with relatively little drawdown.

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Candidate 3 - Akash Bhanshali

Akash Bhanshali publicly holds 21 stocks with a net worth of over Rs. 5,965.7 Cr.
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Candidate 4 - Mukul Agrawal
Mukul Agrawal publicly holds 57 stocks with a net worth of over Rs. 5,403.9 Cr.image

Approach

I have not finalized the investors I plan to clone neither the approach, but I am looking for investors with relatively high portfolio growth and low drawdown, who are slightly on the aggressive side. Further, I plan to make a portfolio of around the top 5 high conviction bets of all these investors. I will sell stocks either as the investors sell them, or as they are no longer one of the top 5 high conviction bets.

(Edit - I am still deciding a way to measure conviction)

This has been inspired from a YouTube video I recently saw, and highly recommend for all.
In the video, Shankar Sir claims that the portfolio made an XIRR of 40%! However, I still need to tweak my approach and back test, and I was hoping that my fellow investors on this platform can help me develop a foolproof strategy.

Drawbacks

The shareholding pattern is released with a delay of around 1 month after the quarter ends. So we may be very late to exit a stock!

Further, most Superstar investors’ portfolios only give stupendous returns in a bull market and sometimes they face huge drawdowns in other conditions!

Closing Note

I hope everyone can contribute to this strategy and help develop it by sharing their thoughts, ideas and potential investors to clone!

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We must also remember that Shankar Sir’s back test was only for bull market conditions!

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Also, remember capital allocation also plays a big role here, let’s say you allocate a high amount to a certain stock while cloning whereas the Big HNI might just invest very little of their portfolio, and if the thesis fails, it doesn’t impact their returns and on the other hand your CAGR mess up

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I usually look at new positions super Investors take and see what % of their portfolio it is.

NOTE : “High Conviction bets” as Mr. Pabrai says, can be a double edged sword.

I whet them according to what I understand and what I can relate to knowing what I know.

Some of the ideas just get dropped because I don’t see why it makes sense, some get dropped because of time constraints.

Something I can understand is eventually my litmus test, not that I understand many industries well but yeh that’s how I do it.

Also, I’m happy to take smaller positions in things I don’t understand and learn along the way. If the stock is doing well and there are fundamentals to support it, I normally average up from there.

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Mr. Pabrai recently cut his stake in Sunteck Realty and Rain Industries which he termed as high conviction bets. I believe he is focussing more on Turkey now as @Vineetjain111 pointed out.

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At the risk of stating the obvious, there are three factors that drive return on your portfolio: 1) Entry Price 2) Exit Price 3) Allocation.

These three are also the reasons why a retail investor shouldn’t clone a star investor’s portfolio.

To elaborate a little further:

1- Entry price- Star Investors (SI) barring a very few exceptions invest in small/microcaps stocks where tradable float/liquidity/both can be very low. This means by the time SI’s holding is published stock has mostly run 2-3 x due to insiders buying the stocks. So if retail enters a stock copying an SI, they are buying at a much higher price, than an SI, capping the upside.

2- Exit price- For same reason as above, when SIs decide to exit a stock, for any reasons say better opportunities elsewhere or something wrong they discovered in the company, retail investors are usually the last to know about it. By the time the latter follows an SI the stock has fallen quite a lot eroding their profit.
In some cases a stock may still continue to go up after an SI’s exit and since retail investor really has no conviction in the stock they will book their profit at lower price, incurring even higher opportunity cost.

3- Allocation- Most SIs generate superior returns from 10-20% of their holdings that do really well while some giving average returns and remaining turning out to be duds. Also not all SIs portfolio returns track each given their individual preferences for sectors. Which means an SI, a retail is copying, may see mediocre results on their holdings for 1-2 years before striking it rich when their sector hits a bullish patch. Not every retail investor has that much patience, especially with stocks, they purchased on someone else’s conviction. And if one decided to copy several SIs to hedge their risk they will end up owning large number of stocks with too little allocation to generate any meaningful return, even if some of their stocks actually became multibaggers.

From my experience (I used to copy star investors at the start of my investing journey before stopping it, thankfully) I have learnt that there is no way I can make same returns as an SI due to differences in entry and exit prices, and allocation. I have also discovered that I can still make good returns, by investing in any 20-30 decent stocks selected with my own conviction, and I have been able to do that.

One star investor recently said (in not exact words): don’t chase money in the stock market… chase the story (to build conviction) and you will build a lot of wealth. Trying to clone a star investor is similar to chasing money without knowing the real story as to why an SI is in a stock in the first place.

One needs to do their own research to build conviction in a stock so that they can hold it in meaningful quantity for a longer period of time to build wealth. If a “credible” star investor happens to be share holder in that stock it’s just cherry on the cake. It can give you that extra validation needed to keep going.

We also need to keep in mind that even SIs are not right all the time (enough data points to prove that) and their entry and exit don’t necessarily mean that a stock or a company is good or bad.

Your own conviction in the story will ensure that you will keep holding the stock even after an SI has exited it.

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I am following same strategies will contribute when I get time

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very difficult to clon as entry level you never know perfect and also exit in same way .Due to that returns may very different

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There are some investors who hold a company for very long term such as Nalanda Capital. Their portfolio can be used for research and further study.
Most investors don’t trade in their long term holdings. The size of these holdings will be greater than 10% of their portfolio. They can also be used for research.
The problem with most retail investors is that they run after the new trading bets with less than 0.5% of portfolio for quick gains. This is like playing poker with the best players out there and trying to win over them.

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Ashish kacholia ji has lots of small caps in his portfolio. Even if not cloning blindly ( as stocks run up on news of his entering a stock ) it helps as a starting point on several interesting names. I have seen the Lucky Investments team participate and ask pertinent questions in several small cap con calls.
I personally like to clone super investors in this forum like @ayushmit and @hitesh2710 . But unfortunately their picks are not revealed as openly as earlier ( may be due to sebi norms). Only option is to search activities of them in VP forum and identify ideas they are keen on.

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